May 02, 2017
Apollo Commercial Real Estate Finance, Inc. Reports First Quarter 2017 Financial Results
NEW YORK--(BUSINESS WIRE)-- Apollo Commercial Real Estate Finance, Inc. (the “Company” or “ARI”) (NYSE:ARI) today reported financial results for the quarter ended March 31, 2017.
First Quarter 2017 Highlights
- Reported net income available to common stockholders of $37.8 million, or $0.41 per diluted share of common stock, for the three months ended March 31, 2017, as compared to net income available to common stockholders of $12.8 million, or $0.18 per diluted share of common stock, for the three months ended March 31, 2016;
- Reported Operating Earnings (a non-GAAP financial measure defined below) of $38.6 million, or $0.41 per diluted share of common stock, for the three months ended March 31, 2017, as compared to Operating Earnings of $29.8 million, or $0.44 per diluted share of common stock, for the three months ended March 31, 2016;
- Generated $57.8 million of net interest income during the quarter from the Company’s $3.5 billion commercial real estate debt portfolio, which had a levered weighted average underwritten internal rate of return (“IRR”)(1) of approximately 13.6% at March 31, 2017;
- Committed $450.3 million to new commercial real estate debt investments and funded an additional $115.8 million for loans closed prior to the quarter;
- Upsized the Company’s master repurchase agreement with JPMorgan Chase Bank, N.A (the “JPMorgan Facility) to $1.1 billion (including $143.0 million of asset specific financing) and extended the maturity date to March 2019, with a one-year extension option; and
- Declared a $0.46 dividend per share of common stock for the three months ended March 31, 2017.
“ARI has had a strong start to 2017, closing over $525 million of new commercial real estate loan transactions year to date,” said Stuart Rothstein, Chief Executive Officer and President of ARI. “In addition, ARI expanded both of the Company’s primary credit facilities for financing first mortgage loans, providing additional capacity to fund our investment pipeline.”
First Quarter 2017 Operating Results
The Company reported net income available to common stockholders of $37.8 million, or $0.41 per diluted share of common stock, for the three months ended March 31, 2017, as compared to net income available to common stockholders of $12.8 million, or $0.18 per diluted share of common stock, for the three months ended March 31, 2016. ARI reported Operating Earnings of $38.6 million, or $0.41 per diluted share of common stock, for the three months ended March 31, 2017, as compared to Operating Earnings of $29.8 million, or $0.44 per diluted share of common stock, for the three months ended March 31, 2016.
First Quarter 2017 Investment Activity
New Investments – During the first quarter, ARI committed capital to the following commercial real estate debt investments:
- $332.8 million of first mortgage loans ($259.0 million of which were funded during the quarter), which were underwritten to generate a levered weighted average IRR(1) of approximately 14.7%; and
- $117.5 million of subordinate loans (all of which were funded during the quarter), which were underwritten to generate a weighted average IRR(1) of approximately 12.0%.
Funding of Previously Closed Loans – During the first quarter, ARI funded approximately $115.8 million for loans closed prior to the quarter.
Loan Repayments – During the first quarter, ARI received approximately $44.4 million from loan repayments.
Quarter End Commercial Real Estate Debt Portfolio Summary
The following table sets forth certain information regarding the Company’s commercial real estate debt portfolio at March 31, 2017 ($ amounts in thousands):
Description | Amortized Cost |
Weighted | Debt |
Cost |
Equity at |
Current
Weighted
Underwritten |
Fully- | |||||||||||||||
| First mortgage loans | $ | 1,955,816 | 8.1 | % | $ | 1,241,762 | 3.4 | % | $ | 714,054 | 14.8 | % | 14.8 | % | ||||||||
| Subordinate loans(3) | 1,256,703 | 13.6 | - | - | 1,256,703 | 13.6 | 13.6 | |||||||||||||||
| CMBS | 296,159 | 4.3 | 245,473 | 3.3 | 105,388((4 | )) | 6.0 | 6.0 | ||||||||||||||
| Total/Weighted Average | $ | 3,508,678 | 9.7 | % | $ | 1,487,235 | 3.4 | % | $ | 2,076,145 | 13.6 | % | 13.6 | % | ||||||||
Please see chart footnotes at the end of the press release.
Credit Facility
ARI amended and restated the Company’s JPMorgan Facility, which ARI primarily uses to finance first mortgage loans. The amendment increased the borrowing capacity to $1.1 billion from $943.0 million (both figures include a pre-existing $143.0 million asset specific financing) and extends the maturity date, including extension options, from January 2019 to March 2020.
Loan-to-Value
At March 31, 2017, the Company’s commercial real estate loan portfolio, including CMBS, held-to-maturity, had a weighted average loan-to-value (“LTV”) of 63%. Within the commercial real estate loan portfolio, the first mortgage loans had a weighted average LTV of 62% and the subordinate loans, including CMBS, held-to-maturity, had a weighted average LTV of 63%.
Book Value
The Company’s book value per share of common stock was $16.05 at March 31, 2017, as compared to book value per share of common stock of $16.12 at December 31, 2016.
Subsequent Events
The following events occurred subsequent to quarter end:
New Investments
ARI closed a £60.0 million ($75.1 million) pari passu interest in a £125.0 million first mortgage loan secured by a 290,000 square foot shopping center and adjacent retail and residential property in Central London, U.K. The floating rate loan has a 15-month initial term, with a six-month extension option and an appraised LTV of approximately 52%.
Funding of Previously Closed Loans –ARI funded approximately $9.3 million for previously closed loans.
Credit Facility
ARI also amended and restated the Company’s master repurchase agreement with Deutsche Bank AG, which ARI uses to finance first mortgage loans. The amendment increased the borrowing capacity from $300.0 million to $450.0 million, plus £45.0 million, and extends the maturity date, including extension options, from September 2019 to March 2020.
Operating Earnings
Operating Earnings is a non-GAAP financial measure that is defined by the Company as net income available to common stockholders, computed in accordance with GAAP, adjusted for (i) equity-based compensation expense (a portion of which may become cash-based upon final vesting and settlement of awards should the holder elect net share settlement to satisfy income tax withholding); (ii) any unrealized gains or losses or other non-cash items included in net income available to common stockholders; (iii) unrealized income from unconsolidated joint ventures; (iv) foreign currency gains/(losses) other than realized gains/(losses) related to interest income; (v) the non-cash amortization expense related to the reclassification of a portion of the convertible senior notes to stockholders’ equity in accordance with GAAP; and (vi) provision for loan losses. Operating Earnings may also be adjusted to exclude certain other non-cash items, as determined by ACREFI Management, LLC, the Company's external manager, and approved by a majority of the Company's independent directors.
In order to evaluate the effective yield of the portfolio, the Company uses Operating Earnings to reflect the net investment income of the Company’s portfolio as adjusted to include the net interest expense related to the Company’s derivative instruments. Operating Earnings allows the Company to isolate the net interest expense associated with the Company’s swaps in order to monitor and project the Company’s full cost of borrowings. The Company also believes that investors use Operating Earnings or a comparable supplemental performance measure to evaluate and compare the performance of the Company and its peers and, as such, the Company believes that the disclosure of Operating Earnings is useful to its investors.
A significant limitation associated with Operating Earnings as a measure of the Company’s financial performance over any period is that it excludes net realized and unrealized gains (losses) from investments. In addition, the Company’s presentation of Operating Earnings may not be comparable to similarly-titled measures of other companies, who may use different calculations. As a result, Operating Earnings should not be considered as a substitute for the Company’s GAAP net income as a measure of its financial performance or any measure of its liquidity under GAAP.
Beginning with the quarter ended September 30, 2016, the Company slightly modified its definition of Operating Earnings to include realized gains/(losses) on currency swaps related to interest income on investments denominated in a currency other than U.S. dollars. The Company believes that including the effects of realized gains/(losses) on currency swaps related to interest income more accurately reflects the Company's investment income for a particular period and will allow investors to more easily compare its operating results over various periods. The effects of such unrealized gains/(losses) in prior periods were not material to the Company's financial results. The Company intends to apply this modified definition for Operating Earnings for all future periods.
Reconciliation of Operating Earnings to Net Income Available to Common Stockholders
The table below reconciles Operating Earnings and Operating Earnings per share of common stock with net income available to common stockholders and net income available to common stockholders per share of common stock for the three months ended March 31, 2017 and March 31, 2016 ($ amounts in thousands, except per share data):
|
Three Months Ended
March 31, 2017 |
Earnings Per |
Three Months Ended
March 31, 2016 |
Earnings | ||||||||||
| Operating Earnings: | ||||||||||||||
| Net income available to common stockholders | $ | 37,815 | $ | 0.41 | $ | 12,801 | $ | 0.18 | ||||||
| Adjustments: | ||||||||||||||
| Equity-based compensation expense | 3,791 | 0.04 | 1,668 | 0.03 | ||||||||||
| Unrealized (gain)/loss on securities | (2,852 | ) | (0.03 | ) | 15,074 | 0.22 | ||||||||
| Unrealized (gain)/loss on derivative instruments | 3,045 | 0.03 | (4,703 | ) | (0.07 | ) | ||||||||
| Foreign currency(gain)/ loss, net | (3,326 | ) | (0.04 | ) | 4,474 | 0.07 | ||||||||
| Amortization of convertible senior notes related to equity reclassification | 608 | 0.01 | 573 | 0.01 | ||||||||||
| Income from unconsolidated joint venture | (458 | ) | (0.01 | ) | (68 | ) | - | |||||||
| Total adjustments: | 808 | - | 17,018 | 0.26 | ||||||||||
| Operating Earnings | $ | 38,623 | $ | 0.41 | $ | 29,819 | $ | 0.44 | ||||||
|
Basic weighted average shares of
common stock outstanding: 91,612,447 | 91,612,447 | 67,385,191 | ||||||||||||
|
Diluted weighted average shares of
common stock outstanding: 92,998,250 | 92,998,250 | 68,327,718 | ||||||||||||
Teleconference Details:
The Company will host a conference call to discuss its financial results on Wednesday, May 3, 2017 at 10:00 a.m. Eastern Time. Members of the public who are interested in participating in the Company’s first quarter 2017 earnings teleconference call should dial from the U.S., (877) 331-6553, or from outside the U.S., (760) 666-3769, shortly before 10:00 a.m. and reference the Apollo Commercial Real Estate Finance, Inc. Teleconference Call (number 4478521). Please note the teleconference call will be available for replay beginning at 1:00 p.m. on Wednesday, May 3, 2017 and ending at midnight on Wednesday, May 10, 2017. To access the replay, callers from the U.S. should dial (855) 859-2056 and callers from outside the U.S. should dial (404) 537-3406, and enter conference identification number 4478521.
Webcast:
The conference call will also be available on the Company's website at www.apolloreit.com. To listen to a live broadcast, please go to the site at least 15 minutes prior to the scheduled start time in order to register, download and install any necessary audio software. A replay of the call will also be available for 30 days on the Company's website.
Supplemental Information
The Company provides supplemental financial information to offer more transparency into its results and make its reporting more informative and easier to follow. The supplemental financial information is available in the investor relations section of the Company's website at www.apolloreit.com.
About Apollo Commercial Real Estate Finance, Inc.
Apollo Commercial Real Estate Finance, Inc. (NYSE: ARI) is a real estate investment trust that primarily originates, acquires, invests in and manages performing commercial real estate mortgage loans, subordinate financings, CMBS